This paper examines the causal relationship between financial development and economic growth in Ghana. This is done using modern time series econometric procedures by employing four proxies of financial development and applying Granger causality test, Cointegration and Vector Error Correction Model (VECM) .The empirical results show a uni-directional relationship between financial development and economic growth and that the direction of causality is sensitive to the choice of proxy of financial development. It was discovered that, the issue as to whether finance follows in the direction of economic growth or lead to economic growth depends on the proxy of financial development. When Credit to the private sector (CPSY) was used to proxy financial development, finance leads economic growth. On the other hand, when the ratio of broad money to GDP (M2+Y) was used as a proxy for financial development, finance follows growth. The empirical Cointegration results support a positive long run relationship between financial development and economic growth.
Keywords: Financial Development, Economic Growth, Granger Causality, Cointegration, Credit to Private Sector as ratio of GDP (CPSY), Broad money to GDP ratio (M2+Y), Currency to GDP ratio (CUY), total domestic credit as a ratio of GDP (DCY) and GDP per capita (YPC).

Description:

A thesis submitted to the department of Accounting And Finance
Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirement for the degree of Master Of Business Administration (Mba. Finance), 2015